OFFSHORE DRILLING:

Shell cancels 2011 Arctic drilling plans

Royal Dutch Shell PLC this morning announced it is postponing plans to drill for oil this summer in seas off Alaska, citing continued uncertainty over whether it would receive federal permits.

Shell CEO Peter Voser in an earnings call with reporters said the company would need to spend as much as $150 million without knowing whether it would receive needed permits from U.S. EPA and the Interior Department.

"Despite our investment in acreage and technology and our work with the stakeholders, we haven't been able to drill a single exploration well," Voser said. "Critical permits continue to be delayed, and the timeline for getting these permits is still uncertain."

The plan took a hit in late December when an EPA appeals board remanded Shell's Clean Air Act permits back to the company for revisions, faulting the agency's analysis of the impacts of nitrogen dioxide emissions from drill ships on the Alaska Native communities (Greenwire, Jan. 5).

Shell, which has invested more than $3 billion in its Arctic development plan, also awaits drilling permits from Interior.

The company's decision postpones exploration by at least a year in a region federal scientists believe could hold the nation's second-largest oil and gas reserves after the Gulf of Mexico.

Shell last fall launched an aggressive advertising and lobbying campaign to promote scaled-back plans to drill one or two wells in Alaska's Beaufort Sea, promising to use an "unprecedented spill response approach" in the wake of the BP PLC oil spill in the Gulf (Greenwire, Nov. 8, 2010).

The proposal seemed to gain momentum when the president's Oil Spill Commission issued a report last month indicating that more scientific study was needed on the Arctic drilling, but that such research did not justify a moratorium.

Alaska Sen. Mark Begich (D) in a letter last week to EPA said he was frustrated with the lack of progress and that the issues that prompted the remand have been unresolved since at least 2007.

Begich told E&E this week that his meeting last Friday with EPA Region 10 Administrator Dennis McLerran on Shell's pending permit was "robust" but did not include a timeline for approval. "They didn't give me a timeline, but it was clear that they want to get these permits out right away," Begich said.

Dan Kish, senior vice president for policy at the Institute for Energy Research, said delaying exploration in the Arctic could imperil the viability of the Trans-Alaskan pipeline, which is currently running at a fraction of its capacity.

"It is very close to a period of time where, without the addition of more oil, it will become uneconomic," Kish said, adding that by law, the pipeline must be shut down if it is not economical, which would strand oil development on the North Slope.

Permitting for offshore drilling has become so riddled with uncertainty that many business are afraid to invest, Kish said.

"They'd gotten 97 percent of their permits," Kish said of Shell's proposal. "I don't know who the hell would want to do business in this country."

But Emilie Surrusco, a spokeswoman for the Alaska Wilderness League, said Shell's decision relieves artificial pressure on federal agencies to rush to approve risky drilling.

"It just goes to show that their plans have been ill-conceived from the beginning," she said. "They're not ready to clean up a spill in the Arctic."

The groups likened Shell's spill response to a "glorified mop, bucket and brush brigade" that has failed to demonstrate whether it could remove up 90 percent of oil from a spill, as Shell claims.

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